Last Chance to Learn: Creditors’ Rights in Tennessee: 10 Collection Strategies

A quick reminder: Tomorrow, June 6, 2013, I’ll be teaching the CLE  presented by M. Lee Smith Legal Publishers called Creditors’Rights in Tennessee: 10 Collection Strategies.

This is a one hour audio seminar, that will cover the usual Tennessee collections lawyer song and dance. Things like:

  • Things to consider prior to declaring a loan in default and filing a collections lawsuit
  • Issues in deciding between Chancery Court and General Sessions Court
  • Importance of knowing your Statute of Limitations
  • Making sure you Sue the Right Party
  • Judgment Liens and why they work
  • Fraudulent Transfers
  • Overview of bankruptcy issues, including preferences and Trustee avoidance actions
  • Common roadblocks to collecting money, including domestication of foreign judgments

It’s one hour of CLE credit, and, hopefully, what I teach you during seminar will put some money in your clients’ pockets.

Is it Bankruptcy Fraud to Dismiss a Case Where Your Plan is to Incur More Debt and then Refile?

I’ve done collections law too long to think of it in moral terms. I don’t think a person who doesn’t pay his bills is necessarily “bad” (though some are). Sometimes, I think the creditor is equally at fault for lending money or providing services to these poor folks.

But, I recently saw a Bankruptcy pleading  that stopped me dead in my tracks.

It was a Motion to Voluntarily Dismiss Chapter 7 Bankruptcy Case, which is a filing a debtor makes to stop his bankruptcy case. People want out of bankruptcy for a number of reasons, but this one took the cake.

In it, the Debtor asked the United States Bankruptcy Court  to dismiss his Chapter 7 because he wanted to, basically, wait a few more months to run up some more medical bills. Then, after that, he’d re-file his case and discharge those new debts.

The exact text from the Motion is this:

1. The Debtor filed a Chapter 7 bankruptcy on November 6, 2012.

2. The Debtor’s meeting of creditors is set for December 12, 2012.

3. Since the filing of this case, the Debtor has incurred extensive medical care and expects to have a surgery and additional medical care in the coming months.

4. The Debtor, therefore, desires this chapter 7 proceeding be voluntarily dismissed.

Without a doubt, that’s a tough situation for the Debtor, facing medical bills that he can’t pay.

But, what about that doctor or hospital who will be asked to provide those services? This is as close as “pre-meditated” default and bankruptcy as it gets.

The Bankruptcy Code allows a creditor to oppose discharge for some debts that are incurred immediately before Bankruptcy, including those incurred via fraud or bad intent. But, to do that, the creditor has to file a lawsuit to claim that the debt shouldn’t be discharged and that’s a burdensome, costly process.

In case you’re wondering, the Motion was granted.

Long story short, some doctor is going to provide goods and services in the near future that certainly will never be paid.  Yikes.

 

My Thoughts on “What To Do When a Creditor Knocks” from the Wall Street Journal

This weekend’s Wall Street Journal ran a article on how to respond to bill collection efforts, called “When Bill Collectors Knock.”  The article mixes good advice with a little bad advice. Here’s my bounce.

Good advice:

Take the call. It is virtually impossible to resolve a problem without addressing it head on. The best way for borrowers to handle a debt they can’t pay is to talk with the lender as soon as possible. Then they should work out a plan to keep the debt current with a smaller payment or to seek a temporary delay until they can pay something.

This is good advice. I talked about the importance of communicating with creditors in an earlier post. The worst thing a debtor can do is be silent, as that invites collection.

Unrealistic advice:

Keep detailed records. Staying on top of debt can be tough. But keeping records and careful notes can pay benefits if borrowers are sued.

I agree that it helps to keep payment records and copies of old invoices, but how realistic is that, particularly with debts that are years old?

But this is better:

Know the rules. Every state puts a limit on how long a creditor is able to pursue borrowers in court.

Your best focus, however, could be records showing your past payment. In Tennessee, the statute of limitations on debt collections is six years from the date of default. If you can provide that it’s been more than 6 years since your default, you may be able to obtain a dismissal of any action.

Bad advice:

Negotiate. Because debt is bought at a discount, collectors should be willing to bargain, perhaps accepting just a fraction of what is owed. If borrowers can come up with the money, they should be able to negotiate a settlement of 50 cents to 65 cents for each dollar owed…

Earlier, the article suggests that most unpaid debt collectors are collecting debts that they paid a mere four cents on the dollar for. So, the article suggests, you should haggle for payments in the range of 50 cents on the dollar.

While this may be true for some debts, in my experience, it’s not as common as the anecdotal stories suggest. The creditors I represent don’t buy debt and so any talk of ten cents on the dollar is a waste of time. Plus, even if a creditor has paid a small amount for a debt, that doesn’t mean that they will accept a small amount to settle, especially if the creditor perceives the debt can be collected in full.

Don’t get me wrong. I always say “Money Talks,” but if you’re making a low ball offer, you have to back it up with proof that your offer is the best you can do, and that requires proof of a debtor’s finances, other debts, etc.

My take-away this this: Over-communicate; Confirm that the debt isn’t over 6 years old (in Tennessee); and Money Talks (or, at least, proof of that the money you’re offering is the most the creditor will otherwise get).

Collection Advice for Lawyers: Get Your Bills Out on Time

Here we are, at the end of the year, and I’m worried about getting all my collection work done for my clients…as well as my collection work on my legal invoices. Yep, it’s the year end cash rush. Trees are being shaken. Happy Holiday emails have invoice reminders at the end. And, yes, unbilled time is being discovered and rushed out the door.

I’ve talked about the best practices for legal invoices to get lawyer bills paid.

This morning, I saw a tweet by @rocketmatter titled  Legal Billing Rule # 1: The Longer You Wait The Less You’ll Get Paid. 

This is great advice. The longer you sit on a bill, particularly on a complex matter, the less likely it is that the invoice will be paid in full.

If you don’t invoice time as you go, you run the risk of shocking the client when you send them 2-3 months of billable time. It is not good to shock a client with your bill. Clients are far more likely to pay bills as the case progresses, in manageable amounts.

Plus, if a client is going to object to the cost to litigate a complex matter, wouldn’t you rather they see the bills for work after one month of litigation? Even the most eagerly litigious client gets back to reality in the face of a zealous lawyer’s bill. Give them this information early, rather than after you’re neck-deep in depositions, Motions, and unbilled expenses. Yikes.

Lawyers aren’t cheap, and the practice of law is not the type of work that lawyers are willing to do for free. If you want to get your bills paid on a timely basis, get them to your client on a timely basis. If you sit on the bills for months and put a low priority on the invoices, then your client will put a similarly low priority on paying them.

Is Naming Your Kid “Junior” Going to Cause Them Trouble? Cross-Generational Financial Woes May Result

Big news here at Creditor Rights headquarters: My wife and I are expecting a baby! We don’t know the gender yet, but we’re reading Baby Name Books cover to cover, looking for that perfect mix of tradition, syllables, and what sounds good.

One thing we’re not considering, however, is a Generational Title, i.e. “Junior.” The baby name experts say it’s a mix of good and bad.

From my perspective as a collections lawyer, I think it can be bad, because I’ve seen one generation’s financial and legal troubles wreak havoc on the other generation. This goes in both directions, with sons causing fathers trouble, and vice versa.

Just this past year, I’ve seen liens on a son’s land ostensibly attaching to the father’s land; wage garnishments on the father’s wages based on the son’s unpaid debt. Bankruptcies showing up on the wrong person’s name, etc.

Much of this stems from our online world, which often indexes information about us based on Name and Location (see Facebook). Two people with the same name who live (at some point) at the same address are going to confuse google, banks, property records, and everybody else.

You might not care about confusing your collection creditors (some people relish in this chaos), but, when one generation’s finances go bad, you’ll care about the impact on your ability to get a loan and sell your house, without having to explain the embarrassing details of your dad’s money troubles.

Don’t get me wrong: it’s a great tradition and a wonderful shared bond between generations. But, when one generation has legal or financial troubles, it’s not just a name that is shared–it’s also the dirty laundry of money mistakes.

Two Signatures Not Required: New Tennessee Supreme Court Decision Finds Personal Guarantees will be Enforced by Their Clear Text

Lately (i.e. in this economy), I’m constantly fighting over the enforceability of personal guarantees.

A personal guarantee is an agreement by which a third party agrees to personally repay another person’s/corporation’s debt. When a corporate entity doesn’t have a credit history or sufficient assets, a lender will generally ask for an individual to personally guarantee the debt. Creditors, obviously, want guarantees, because more parties obligated to repay your debt increases your chances for repayment. If a creditor files a lawsuit, it can obtain a judgment for the debt against all of the guarantors.

With the rise in defaults, guarantors are getting sued more than ever before. Their only defense is to attack the guarantee, and, as a result, the text of these agreements is constantly being tested. A common issue relates to the signature line(s): if a corporation’s president signs a contract that contains guarantee language, does the president need to sign twice, both as “Bob Smith, President” and then a second time as “Bob Smith?”

In the past, the overwhelming outcome was that there needed to be two signatures–one from the President and one from the Individual.

So, in that context, you’ll understand why I liked the recent Tennessee Supreme Court case of 84 Lumber Company v. Bryan Smith (Dec. 12, 2011). There, the Supreme Court looked only at the text of the contract. That text clearly said that the person signing the contract for the corporation was also personally obligating himself  to serve as the guarantor. When the text is crystal clear, it doesn’t matter that there is only one signature.

So, even though the only signature on the contract was by ““R. Bryan Smith, President,” the Court said “[t]he explicit and unambiguous language of the contract points to only one conclusion: Mr. Smith agreed to be personally responsible for the amounts due on the account.”

A good practice would still be to get two signatures, but, in light of this case, it’s certainly not fatal to only have one signature.

Collection Advice for Lawyers: Use Detailed Invoices as a Way to Justify your Fees and Get Paid

I received a collection notice in the mail last week, from a Georgia law firm that domesticated a judgment for one of my Tennessee bank clients. I had subconsciously sat on their invoice for a month, mainly because I hated their invoice and didn’t want to forward it to my client.

It wasn’t for a lot of money, but I hated it because it didn’t tell a compelling story showing the value my client received.

The invoice didn’t have the hourly rate of the person providing services. The time spent for each task wasn’t itemized. The invoice provided only minimal details about the work provided. In short, it didn’t prove that value was given, and it didn’t tell a story.

If a lawyer is ever going to advocate, the time is when he’s asking to be paid. When I send out a bill, I always keep in mind:

  • Always provide (too much) detailed information about the work you do for a client on a bill.  Leave the client no question that they are getting lots of great legal work.
  • Include all the “technical” information on the invoice, showing how much time is spent on each task, who performed it, and how much was charged for the task.
  • Most important, craft your time entries in a matter that tells a story, which will show the client the value of your time.

Compare:  the below one (1.0) hour billing entries:

                       “Legal Research on jurisdiction”

                       “Legal Research in Tennessee statutes and cases on issues related to Delaware corporation doing business in Tennessee and whether internet website justifies lawsuit filed in Tennessee”

                        Which one is more likely to be paid?